On 26 March 2025, the Supreme Court of New South Wales ruled on rental bond regulations in NSW in ZeroBonds Residential Pty Ltd v Commissioner for Fair Trading [2025] NSWSC 265.
Brereton J considered sections 23 and 32 of the Residential Tenancies Act 2010 (NSW). In doing so, Brereton J determined whether two novel financial products—the “Bond Replacement Product” and the “Bond Reversal Product”—could lawfully operate within the Act’s tightly regulated scheme for tenant payments.
The court found that the Bond Reversal Product would contravene sections of the Act. Radio personality Kyle Sandilands reportedly holds a majority interest in the entity offering the product. A summary of the Court’s findings and the submissions advanced by counsel on both sides follows.
The Products:
Bond Replacement Product
- Mechanism: Instead of posting four weeks’ rent as a bond, a tenant would pay ZeroBonds a non‑refundable fee of 14.5% of that amount.
- Cover: ZeroBonds would undertake up to six weeks’ rental liability for the landlord if the tenant breached their lease.
- Terms: Included an initial $49 application fee, approval valid for six months, and a deed‑poll arrangement for the landlord’s benefit.
Bond Reversal Product
- Mechanism: Allowed tenants who had already lodged a bond to retrieve it mid‑lease, substituting the bond with ZeroBonds’ guarantee on identical terms.
- Objective: To improve tenant cash flow without exposing landlords to additional risk beyond the four‑week bond cap.
ZeroBonds submits its products would ease tenant access amid the housing crisis by lowering entry barriers through a voluntary, landlord‑approved scheme. Opposing parties argued that the arrangements circumvent the Act’s strict bond regulations and undermine its tenant protections.
The Act:
Under the Act, tenants must ordinarily pay a security bond of up to four weeks’ rent, which landlords must lodge with the NSW Rental Bond Board. Against that backdrop, ZeroBonds sought declarations that its two products did not contravene:
- Section 23 (payments “before or when” entering a tenancy agreement)[1], and
- Section 32 (payments “for or in relation to” extending or continuing a tenancy).[2]
Positions advanced by opposing parties:
By way of summons, ZeroBonds sought declarations that:
- that each of the Bond Replacement Product and Bond Reversal Product do not contravene sections 23 or 32 of the Act;[3]
- alternatively, that:
- ZeroBonds does not contravene section 23 of the Act if it requires or receives payment for the provision of the Bond Replacement Product or the Bond Reversal Product, unless it requires or receives such payment as a condition of entry into a residential tenancy agreement;[4] and
- ZeroBonds does not contravene section 32 of the Act if it requires or receives payment for the provision of the Bond Replacement Product or the Bond Reversal Product, unless there is some separate conduct for or in relation to such payment within the meaning of section 32.[5]
Section 23
ZeroBonds challenged the scope of section 23, arguing that the phrase “before or when the tenant enters into the residential tenancy agreement”[6] could be read in two distinct ways.
- A temporal framing interprets “before or when” as identifying the period during which the law prohibits demanding payments. ZeroBonds argued this reading would produce absurd results, potentially catching ordinary commercial transactions unrelated to securing a tenancy.
- A conditional framing, under which “before or when” operates as a precondition: only those payments explicitly required as a condition of entering into a residential tenancy would be caught. This approach, as ZeroBonds contends, avoids the unintended consequences of the purely temporal interpretation.
The Commissioner submitted that “before or when” in section 23 has its ordinary temporal meaning. It prohibits any payment from a tenant during that period, except for four narrow statutory exceptions. The qualifier “from a tenant” requires a direct connection to the proposed tenancy. [7] This construction confines the prohibition to genuine tenancy‑related fees without ensnaring everyday commercial transactions.
Section 32
ZeroBonds acknowledged that the Bond Reversal Product is causally linked to the continuation of a residential tenancy agreement. It did however argue that such a mere causal connection is insufficient to bring section 32 into play.[8] It stressed that continuation of the lease is not conditional upon using its product. It also stressed that the fee charged akin to a premium paid to secure or renew the tenancy. Accordingly, ZeroBonds maintained that its Bond Reversal Product does not contravene section 32.
The Commissioner argued that a tenant’s payment causally connected to continuing, renewing or extending a tenancy falls within section 32’s prohibition. In the Commissioner’s submission,[9] because the Bond Reversal Product enables tenants to recover their traditional bond mid‑lease – and requires them to pay a fee for the tenancy to persist – it necessarily involves a payment “for or in relation to” continuing the agreement. Thus, the Commissioner opposed any declaration that the product was lawful.
Brereton J’s Construction:
Brereton J adopted the Commissioner’s ordinary temporal construction of section 23 but emphasized that those words also define the circumstances in which the prohibition operates:
- Temporal Element: Payments cannot be required or received any time before, or at the moment of, entering the tenancy agreement.
- Circumstantial Element: The prohibition applies only to payments made “because the other person is a tenant … who desires or is proposing to enter into a residential tenancy agreement”.[10]
His Honour rejected the conditional reading – treating section 23 as applying only to payments explicitly required as a precondition of entry – as too narrow and prone to tenant exploitation, and likewise dismissed the direct connection test as an unwarranted complexity unsupported by the statutory language. His Honour concluded: “Even if the construction of section 23 of the Act advanced by ZeroBonds was correct, the issue of the Bond Replacement Product would offend section 23 of the Act as so construed.”[11]
By reading “before or when” in its natural, temporal sense, and construing “from a tenant” contextually, the Court ensured that all payments made by prospective tenants to secure tenancies would fall within the section unless expressly permitted. Those permitted categories are themselves subject to detailed regulation, reflecting the legislature’s intent to protect tenants from unauthorised fees and to centralise bond‑handling.
In relation to section 32, Brereton J agreed with the Commissioner. He held that when a tenant replaces a traditional bond with the Bond Reversal Product, ZeroBonds “requires and receives” a payment that is plainly “for or in relation to” continuing the tenancy, regardless of whether it is framed as a condition or called a ‘premium’.[12] He also observed that some landlords might insist on the product as a prerequisite for renewal or extension. This further cements its capture by section 32. His Honour ruled that the parties could not draw a clear distinction between lawful and unlawful uses of the product. This made ZeroBonds’ declaratory relief unsuitable in this case.[13]
The Court dismissed ZeroBonds’ summons in its entirety. It found that both products contravened sections 23 and 32. The declaratory relief was inappropriate given the wide-ranging and potentially exploitative scenarios in which the products could operate.
What does this mean for rental bonds in New South Wales?
This landmark decision:
- Reinforces that only statutorily‑prescribed payments may be exacted from tenants, at any stage of tenancy.
- Makes clear that bond‑replacement schemes must stick to the existing rules, and that you cannot use clever financial tricks to dodge tenant protections.
- Defines what “before or when” and “for or in relation to” mean, so the rules are applied consistently.
For tenants and landlords, the judgment underscores the importance of adhering to the Act’s strictures on bonds and related payments. Courts will scrutinise any attempts to sidestep those protections. Judges aim to uphold the legislature’s mandate to shield tenants from unauthorised fees.
Full decision here: https://www.caselaw.nsw.gov.au/decision/195cf221399cd78c4a0f7c4d
Jake McKinley notes that this article is written for the purpose of providing generalised information and not to provide specialised legal advice. If you require qualified legal advice on anything mentioned in this article, our experienced team of solicitors at Jake McKinley are here to help. Please get in touch with us on 02 9232 8033 today to make an enquiry.
[1] Para 10.
[2] Para 12.
[3] Para 2(1).
[4] Para 2(2)a.
[5] Para 2(2)b.
[6] S 23(1) Residential Tenancies Act 2010 (NSW).
[7] Para 16.
[8] Para 92.
[9] Para 93.
[10] Para 19.
[11] Para 4(3).
[12] Para 94.
[13] Para 97.
